CHAPTER 3 COSTVOLUMEPROFIT ANALYSIS

NOTATION USED IN CHAPTER 3 SOLUTIONS

SP:     Selling price
VCU:    Variable cost per unit
CMU:    Contribution margin per unit
FC:     Fixed costs
TOI:    Target operating income

3-1 Cost-volume-profit (CVP) analysis examines the behavior of total revenues, total costs, and operating income as changes occur in the units sold, selling price, variable cost per unit, or fixed costs of a product.

3-2 The assumptions underlying the CVP analysis outlined in Chapter 3 are

1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units sold.
2. Total costs can be separated into a fixed component that does not vary with the units sold and a variable component that changes with respect to the units...